Attention Retirees
You have worked hard and have now retired. You receive pension and/or annuity benefits, have taxes withheld and all is well when you file your income taxes. True – well, maybe in the past, but perhaps not in the future due to changes to income tax by way of the Tax Cuts and Jobs Act of 2017.
For retirees who receive a monthly pension or annuity check, this may mean changing the amount of federal income tax they have withheld. The easiest way to do that is to use the Withholding Calculator available on the IRS website – www.irs.gov. This calculator can help you determine if you have had sufficient withholdings from your pension or annuity or IRA.
When using the Calculator, if the taxes are different from the amount being withheld, a new withholding form should be submitted to the payer. Pension recipients can make a withholding change by filling out Form W-4P, available on IRS.gov, and giving it to their payer.
Because of the limited amount of time left in 2018, some retirees may be unable to adequately cover their expected tax liability through withholding. In that case, another option is to make a quarterly estimated or additional tax payment directly to the IRS.
If you have not yet received your required minimum distribution for 2018, you can still adjust the amount withheld and avoid penalty.
The fastest and easiest way to make estimated tax payments is to do so electronically using IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). For information on other payment options, visit IRS.gov/payments.
Whether or not retirees receive a pension, there’s another option, available to most of them, for paying their income tax liability during the year. They can ask the Social Security Administration to withhold tax on their Social Security benefits. Unlike wages and pensions, withholding on Social Security benefits and other government payments is voluntary and not based on withholding allowances. Instead, beneficiaries can choose to have income tax withheld at one of four flat rates — 7 percent, 10 percent, 12 percent or 22 percent. To request voluntary withholding and for more information, get Form W-4V, available on IRS.gov.
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